COVER YOUR ASSETS - A WORD OF CAUTION ABOUT INSURANCE

Insuring a home – especially a vacation home – should be a piece of cake, right? I mean you insure it for what you paid for it and go on down the road. Allow me to tell you how this attitude proved disastrous for me:

In 2010, I bought a 1,100 square foot cabin in Gatlinburg for $210,000. I put another $25,000 or so in it to get it up to par to rent, so it seemed as though $230,000 should be fine for the replacement cost, especially given that a bunch of the value of the place was in the land (it was on a river). Easy peasy. So I rocked along for several years and didn’t think to increase the value on my insurance policy. Things in the Smokies were pretty flat.

Then one fine day in 2016, my cabin burned to the ground in the Great Gatlinburg fire. But I have insurance, so no problem, right? Well, I did promptly get a check in the mail for $230,000. What I didn’t realize is, after a natural disaster that wipes out hundreds, if not thousands, of dwellings, the price to replace the dwelling you just lost explodes. Why? Because there is a very limited number of builders in a place like Gatlinburg, and when the builders are suddenly inundated with requests to build new dwellings, the prices rise quickly. Supply and demand.

Fast forward a year, and my cabin was indeed finally rebuilt, but at a cost of $330,000. I was $100,000 underinsured. So that $100,000 had to come out of my pocket to finish the cabin. Had I been paying attention to the policy over those years, I would have insisted on increasing the insured value at least 10 percent per year.

This year, I asked the insurer to place $650,000 on the policy for this same cabin, as prices in Gatlinburg have skyrocketed. They balked, so I walked: I found another insurance company the same day that agreed to $650,000, and for just a few dollars more.

The moral of the story: When it comes to insurance, always OVERESTIMATE the value of your assets. Don't be neglectful on your annual renewal.  Pay attention to what is going on in the market, and what could happen if a natural disaster destroys your property.